The Week in Geek – Dec. 31, 2006

Return of the Tech IPO
There were 35 tech IPOs in ’06, the same as ’05, and a fraction of the 170 in freak year 2000. But analysts see between 60-75 tech startups going public in ’07. ClearWire (wireless broadband), Sourcefire (Security), and NetSuite (enterprise portals) all seem likely. The strong performance for those tech firms that went public in ’06 is fueling interest. New listings will also get a boost if the new congress lessens SarbOx restrictions, too.

AT&T and Bell South: Together at Last
It is now the largest telecom firm in the world (28% bigger in revenue than #2, Japan’s NTT), but this is not your parents’ AT&T – this one is in San Antonio rather than Basking Ridge, NJ. And it’s really SBC, a former Baby Bell. The Texans now own the ‘Bell’ brand since the SBC / AT&T ‘merger’ a year ago. Since becoming CEO of SBC in 1990, AT&T’s Whitacre has pulled off 13 deals with a combined price tag of $285 billion, including assumed debt. And by absorbing Bell South, Cingular (which started as a JV between SBC & Bell South) will be re-branded as AT&T, a moniker that virtually disappeared in the wireless space when Cingular acquired AT&T Wireless two years back. Some additional facts from Forbes: The new AT&T will serve 90 million accounts. It will have 68 million phone lines in 22 states, 12 million high-speed Internet access users and 59 million wireless customers. It will employ 300,000 people, have 1.8 million shareholders, and will be one of the nation’s largest property owners, with 2,300 stores and a fleet of 35,000 trucks, each one a moving billboard. This rebuilt juggernaut will have annual revenue in 2007 near $110 billion and net income of $10 billion. Grad TechTrek will be visiting Cingular at the former AT&T Wireless HQ outside Seattle. Concessions allowing the $85 billion deal (Telecom’s largest) to go through included a modest two-year moratorium on raising prices selectively for certain carriers (tabling the Net Neutrality crisis, at least for a few months). Also news as we visit with Juniper’s CEO & Cisco’s management in the coming week – AT&T is building an all-Internet network, encompassing 40,000 miles of newly laid fiber-optic lines. The telecom wars look like a three-way battle (AT&T, Verizon, Comcast) and our friends in the equipment space are happy to act as the arms merchants.

Disruption in Internet, phone services highlight dependence on telecom industry
A quake in Taiwan between X-Mas & New Years snapped or damaged a significant portion of the 15 high-speed undersea fiber optic cables that serve most of the region, including all seven major cables linking China to North America. These cables are ‘the’ link making the Net worldwide – almost no E. Asian traffic is routed through Europe or S. Asia. Telecommunications remained sluggish (in some areas nonexistent) in Taiwan, Hong Kong, Japan, China, Singapore and South Korea. Seoul, banks saw trading slow. Hong Kong’s Internet data capacity was cut in half. Singapore, Malaysia, Japan and the Philippines reported slowdowns or access difficulties, mainly to foreign Web services. Thailand reported a disruption in international phone service.

Verizon Lets Others Sell Content
U.S. wireless firms had previously limited mobile content, creating a ‘Walled Garden’ reminiscent of early AOL. Mobile carriers wanted to own a big portion of the media as well as provider business (think being both the mobile Yahoo & Comcast combined). But limiting content is a flawed business model and it’s much better for the carriers to allow openness as a way to fuel innovation and adoption. The mobile Internet is still very limited; service for low-end phones is painfully slow, interfaces are largely terrible, and many sites aren’t mobile friendly. But things are improving, particularly as wireless providers open their networks. Cingular Wireless increased its mobile-content market share to 46% (first in the industry) after it allowed third-parties on its network. Yahoo Music and Napster customers can now transfer songs to certain Cingular phones. T. Moble, Sprint, and Verizon have all followed by allowing some third party content. Most carriers still prefer to have charges for fee-based services pass through their billing networks (where they take a cut). Cingular, sent a memo to content partners restricting customers’ use of PayPal to pay for mobile content. Mobile firms also claim being restrictive allows them to keep out scammers & viruses, but the policies are mostly about the money. The new crop of consumer smart phones take aim at the consumer market (Samsung Blackjack, Nokia E62, Motorola’s Q, the T-Mobile’s Dash, and the Treo 680), a trend that’ll may create a Blackberry-like passion among mainstream net users not yet leveraging the mobile web. I had a chance to try GoogleMaps for the Palm 680 at Cyberposium and it was killer-good. Products like Helio’s Google Maps GPS with BuddyBeacon will be huge with the Facebook crowd – see your buds, IM to find the best party, and get directions in a snap. When cheap devices with this power hit the high school & college market, the mobile Net hits big. With more cheap, functional handhelds on the way 2007 is likely the mainstream year for the mobile net.

A Big Change for eBay China
China did about $75 billion in e-commerce last year, half a billion in online ad spending, and will be the largest Net population by 2009. But the market is proving brutally difficult for foreign firms and eBay is the latest big name to concede that it needs more help in cracking the Chinese EC code. The world’s biggest online auctioneer will put its China eBay business into a 49/51 split venture with Beijing-based Tom Online. eBay entered the Chinese market through a $180 million acquisition of EachNet, then the largest Chinese player with an 80% market share. But the firm has been rattled recently by new leader, Alibab/TaoBao (Alibaba currenet has a 59% share). TaoBoa provides free listings (it makes money largely via listings in its commercial unit & is considered technically superior). Yahoo turned over its Chinese operations to Jack Ma’s Alibaba last year in exchange for $1 billion and a 40% stake in the venture. In another similar deal in ’03, Time Warner sold a controlling stake in its struggling China TV station, CETV to Tom Group. The sprawling Tom Group is controlled by Hong Kong tycoon Li Ka-shing. Google has also suffered in China – losing share this year to Baidu.com (which has a 60% share of the local market). Even Microsoft’s MSN has partnered with the Shanghai government to gain local help. In a separate deal China deal, PayPal will give $105 million for a 33% stake in the venture with UMPay, which is itself a joint venture between China Mobile, China’s top mobile carrier, and China UnionPay, operator of an electronic financial system linking most major Chinese banks.

Can Yahoo Catch Google?
Google is king of search ads. It has over 50% of the market when you factor in the ads Google serves on affiliate sites Ask.com and AOL. Yahoo (23.9%) and the Microsoft sites (8.8%) are way behind. Fortune’s Kirkpatrick provocatively speculates that Microsoft may buy Yahoo or will at least aggressively pursue a partnership. With MS stock set to soar next year & Yahoo losing execs once seen as stars, this seems increasingly more likely. Another wildcard – Ask.com. While the site is a dog with a 2.8% share, Ask execs claim that when you factor in the other brands it owns (Excite & iWon), plus licensees (like Lycos & InfoSpace) it has a share closer to 10%. With those numbers, Ask approaches the influence AOL had last year. Recall a major bidding war resulted in Google shelling out $1 billion for a 5% AOL stake. Still, Barry Diller spent $2 billion for the then-labeled ‘AskJeeves’, a brand so weak that Diller himself referred to it as ‘that fat butler’. Will Barry get his money’s worth, even as a ‘swing state’ in the search war? Biggest threat in my book is a Microsoft that can figure out how to embed search into all its assets (Vista, IE, Windows Mobile, XBox) without rankling anti-trust. Sure Google has low switching costs, but no one has come up with a reason to switch. If an elegant MS product can be built into next-gen everything out of Redmond, and they can avoid being sued for doing it, then Microsoft has a shot at Netscaping Google.

Finally, a Yahoo manager claims Google had a Second-Mover advantage by improving on the Overture search product Yahoo bought, but the claim is totally bogus – Yahoo simply took their eyes off the ball. In the days of the free ‘Big Four’ (Yahoo, Excite, InfoSeek, and Lycos), the average response time for one rival to match an innovation from the first-mover was about a month and a half (warning: boring academic paper). But Yahoo bought into the ‘search as commodity’ argument without thinking about how commodity tech can create sustainable assets like brand. Now Google is the verb for search & Yahoo has no legitimate plan to catch up. The fact that it took 2 years for Yahoo to match Google’s ranked search ads is unforgivably bad management. Yahoo bought search from Alta Vista, Inktomi, and Google before it realized that this commodity, delivered in a lean, uncluttered interface, was exactly what users wanted. Shame on those who bought the Nick Carr arguments about commodity tech or Porter’s argument about the ‘Myth of the First-Mover’. As any of our undergrad business students know, it’s not the tech or the timing alone; it’s what you do with the tech & the timing. If Ask does anything fancy with tech; then an ‘awake’ Google should match it. Exploiting a swing vote in the search wars is the best Diller can hope for. The fat butler’s gone, so what has Barry got? Maybe something can happen with Citysearch / Ticketmaster properties, but is that content really so unique that cash-flush, better known rivals can’t respond quickly?

Google Checkout Makes Inroads on PayPal’s Turf
Google Checkout isn’t a perfect substitute for PayPal. Unlike PayPal, which is a full-fledged payment system that can be used to transfer money between individuals and linked to bank accounts, Google Checkout simply offers users an easy way to use their credit cards with participating merchants. Checkout users enter their credit card, shipping and billing info into Google’s system. Then they can pay with Checkout at participating stores without having to re-enter their personal information. PayPal, has 123 million users around the world, and processed $9.1 billion worth of transactions, up 37% from a year earlier. But there are signs Google is a rising threat. GSI Commerce (the firm that now runs toysrus.com, levis.com, and timberland.com, says one-in-five transactions are from payment services and “Google is the biggest by far”. Deep pocketed Google is spending aggressively to create a network effect of buyers & merchants that leverage Checkout. Google has offered merchants $10 worth of transaction processing for every $1 in advertising they spent on Google. Then on Nov. 8, it waived transaction fees for all merchants for the remainder of ’06, regardless of whether or not they were Google advertisers. On Nov. 27, it began offering Checkout users $10 off $30 purchases at many e- commerce sites and, in some cases, $20 off $50 orders. Estimates suggest it has spent $20 million in the prior quarter on Checkout promotions.

Cisco Invests $50 Million in Chinese Firm
China Communications Services Corporation (CCS), a former division of state-controlled China Telecom, went public in Hong Kong earlier this month. Cisco’s recent $50 million stake makes it the firm’s largest non-Chinese investor. Cisco’s China reach is growing – it has committed more than $700 million in venture funding to nearly 30 Chinese companies. Other recent investments include e-learning company Ambow and gaming company Shanda. Most suggest this is a wise move given (as mentioned above) that China is on target to have the largest Net population in the world by ’09. China is a long-term play not without controversy. eBay has since its lead evaporate with fierce competition from Alibaba/Taobao. Yahoo and Microsoft have been tagged in D.C. or in the media as complicity helping Chinese censorship. And in a glimpse at things to come, the school board in Dover, PA, voted to delay the purchase of a $416,661 phone system from Cisco for fear the contract could contribute to oppression in China. The board is studying Cisco’s effect on China’s human rights abuses and censorship. The debate over a principled stance today vs. a quicker long-term road to democracy through economic growth & slow liberalization is complicated, but the New York Times offered a great read earlier this year in the article Google’s China Problem (and China’s Google Problem).

No Substitute for Getting Personal If You Want the Perfect Fit
The NY Times profiles Zafu.com, a search engine for clothes targeted (initially) at helping women find the perfect fitting jeans. Visitors click through a questionnaire of about a dozen items, after which Zafu determines the visitor’s body type and displays what it believes are the best-fitting jeans for that customer. Zafu customers rave about the results. The firm tested the system in its Emeryville, CA offices, eventually honing the system to “where 94 percent of the women who went through our process said the jeans fit them great“. The company makes money by earning a commission of 5 percent to 15 percent on every pair of jeans sold on the hundreds of retail sites with which it has agreements. Zafu is run by former Levis exec Robert Holloway, who is also CEO of Archetype Solutions, the firm behind the highly successful personalization engine at LandsEnd.com. Archetype/Zafu will be a stop for the Grad & Undergrad TechTreks in 2007.

Can Anyone Catch iTunes? (subscription to WSJ required)
iTunes commands 72% of the online-song market – enough to make it the No. 4 retailer of music in any form – while eMusic, its closest rival, holds just 10% and most competitors languish in the low single digits. Yahoo Inc. is trying to integrate its music service with gadgets people already carry, such as cellphones, so they can listen on the go without buying a pricey music player. Napster Inc. is trying to woo customers with free, ad-supported versions of its subscription service. The No. 2 digital-music retailer, eMusic, is reaching out to people who still shop for CDs by offering CD-style packaging for some of the digital albums it sells. All rival services, except for eMusic, don’t work with the iPod. Microsoft Corp., which has deep pockets and a broad rivalry with Apple. The software giant’s 3% market share puts it in a three-way tie for fourth place in the digital-music market. RealNetworks Inc. — one of the companies tied with Microsoft for fourth place – is mounting a similar, if modest, effort through a partnership with hardware maker SanDisk Corp. and Best Buy Co., the country’s No. 2 brick-and-mortar music retailer. EMusic recently began selling “prepackaged digital music in a box” at all 650 Borders stores. iTunes sales held steady at 137 million songs in the second and third calendar quarters of this year, a slight dip from 144 million in the first quarter, but Christmast iTunes visits were up over 400% from a year ago. Chief Executive David Pakman attributes eMusic’s comparatively strong 10% market share to one simple fact: The service, unlike almost every other iTunes competitor, is compatible with the iPod. In May, Los Angeles-based Napster began offering a free version of its “all you can eat” subscription service, which lets users listen to all the music they want at no charge. The catch is that they face a number of limitations on use. Among them: They can listen to any given song only three times a month, and they can’t load the songs onto a portable player or otherwise copy them. Napster sells advertising to make up for lost subscription revenue.

Dos an Don’ts for Entrepreneurs – From Those Who’ve Actually Done It
Knowledge@Wharton offers roundtable advice from up & commers that built startups through the downturn. This will likely be good reading for the 100+ attendees at the kickoff for the new Boston College Venture Competition.

Grad Students’ Web Site Means No More Haggling
Ever haggled with roommates & friends over bar tabs, splitting a restaurant check, or paying your share of the utility bill? So did three CMU students who created Buxfer. Founded three years ago as a pet project, the site has processed nearly a million in transactions from 3,000 users. It’s a neat idea of tech problem solving for those considering creating an entry in the new Boston College Venture Competition.

Blackberry Orphans
Research In Motion, the maker of BlackBerry, logged 6.2 million subscribers at the end of the second quarter this year, up from 3.65 million in the same period last year. Palm sold 569,000 Treos in the first quarter this year, up 21% from the same quarter the previous year. But if you’re lashed to your Crackberry think of the children. The Wall Street Journal offers a send-up on kids hiding their e-mail devices from addicted parents who have broken ‘house rules’ by checking in during family time.

Intel Targets Tiny PCs
Earlier this year Intel sold most of its cell phone technology (TechTrekkers note: the unit was sold to Marvell for $600 million. Marvell was founded by our friends at Tallwood). Selling the cell tech seemed strange for a firm desperately seeking new markets worth billions. But Intel is the largest manufacture of ‘radios’ for computers (as in WiFi antennas). And while it has shed its cell phone bet, it’s doubled down on WiMax, the next-gen technology that measures hotspots in miles not feet. Intel’s bet is that the end device isn’t a Palm or Windows smartphone, it’s an ultra-tiny PC. Intel EVP Maloney states Motorola, Nokia, Samsung, and – for infrastructure – Nortel, have all made big bets on Wi-Max. “All the big guns but Qualcomm“. He’s pretty confident this kind of device will fit into a handbag of prospective customers. “We’ve got an 11-nanometer transistor working in the lab. That’s five generations out, so we can see what’s coming”. Fortune telling courtesy of Moore’s Law.

NetFlix on 60 Minutes
The CBS news program offers some neat online video offering a peak inside one of our favorite case studies over the past several years. How’d the firm increase profits 7 fold when Blockbuster lost $1.2 billion & Wal-Mart retreated? Take a look at the clips for an idea.

BioTech Dreaming
Sirna Therapeutics, a pioneer in RNA interference (RNAi) technology is set to be acquired by Merck for $1.1 billion. CFO (and BC MBA alum) Greg Weaver played a critical role in piloting the firm through the challenging and tumultuous terrain as a publicly held biotech pioneer. Weaver’s work is profiled in a cover story in CFO Magazine that focuses on municipal efforts to nurture biotech (Sirna moved from Colorado to San Francisco). Weaver will be hosting Grad TechTrekkers in early January.

The Borat of Wall Street
Amil Chatwani, a Princeton computer science grad, moved to NYC along with 10 cub investment bankers and marinated in their vernacular and rituals. He found himself invited to yearend bonus parties of P. Diddy-esque profligacy and launched an online blog (http://www.leveragedsellout.com/), sending up the 20-something i-banking set. BusinessWeek does a recap of the widely-read site that’s worth a look for prospective i-bankers.

Wikis, Blogs, Podcasts and the Future of Academic Publishing
I recently gave an informal talk to BC faculty on the crisis in the textbook industry and my experiences (good and bad) leveraging new media in my job at BC. The enhanced podcast is offered above. While it’s likely only of interest to other faculty, your comments are welcome.